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This past weekend I did an interview with a local community activist who has an Internet based television show. We taped on Saturday at a studio at 38th and High School Road. It was in a strip mall that was full of places that most of us would likely never go. The inside was half finished, there were bars protecting shops, like I said, it was a likely a place where most of us would never go. But that’s most of us. For a lot of people that “mall” was their livelihood. They bought clothes there, got haircuts there and some even purchased furniture there. I wouldn’t, but that’s not my world.

I bring this up because this week, lawmakers are going to hear testimony on SB 245. The legislation would allow someone who takes out a small term loans (in our world we call them payday loans) to have up to two years to pay them back. Currently a borrower can take out between $50 to $500. The legislation would create a new lending option ranging from $605 to $2,500. Opponents say this is predatory because of how much would be paid over time. I will be the first to admit that if you’re taking two years to pay back $2,500 it can add up. However, what makes this bill different is that all payments are applied to reducing the principal, there’s no penalty for early repayment and monthly payments are fully amortized. So as long as you’re responsible you should be fine.

It’s easy to see the “outrage” from folks like us who live in this world. But then again, we have access to banks, credit unions and other financial institutions that we can get money relatively easily if we need it. Or to go further, most of us keep a few thousand dollars in the bank in case of emergency, but that’s the world we live in. We don’t live in the world where people truly are living paycheck to paycheck and need access to capital when real life throws them an inside curve ball.

According to the Indiana Department of Financial Institutions in 2016 there were a total of 1.3 million small loan transactions which clearly shows there is a huge need for small loans in Indiana and out of those 1.3 million transactions the department received a total of two complaints. Based on those numbers, it looks like the people most complaining about the short-term loans aren’t the ones who are using them, maybe because they don’t live in that world. Perhaps they should spend more time there.

No matter how one rationalizes it, there still is something morally corrupt about taking advantage of desperate people, especially so when they’re poor. A fair profit for a loan is just that; fair. Charging usurious interest rates hundreds of times over prime is criminal, which is why there used to be laws against this very thing. The rich have always built palaces upon the backs of the poor, often under the guise of “helping” them.

The_Amazing_Abdul

So what is a “fair” rate for a pool that is generally “high risk” and “high default”?

malercous

A rate (adjusted bi-annually) which permits the business to earn no more than 16% profit. Most businesses would love to have a return like that & it wouldn’t be gigging the desperate/poor too badly.